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Introduction to Vanguard's Low-Cost Active Funds

27 November 2018 | Portfolio construction

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Andrew Surrey
Senior National Development Manager, Vanguard Europe

Investors are using our low-cost active funds as a core diversified holding to low-cost active. It's important for investors to understand that they should have the tolerance for the underperformance as well as the outperformance potential that active delivers. The fund managers we've selected have a low correlation with each other. What we mean by that is that often when one manager’s outperforming, another one might be underperforming, but overall we hope that over time the funds will deliver the potential for outperformance for clients that can tolerate it.

What this means is that any outperformance that's generated above a benchmark isn't eroded by the high fees you typically see from actively managed funds. Vanguard has also used its scale to access at a low cost external managers and we've chosen managers that behave differently in different environments, thereby smoothing out a lot of the bumps you see along the way with active management.

Vanguard has four low-cost active funds domiciled in the U-K. The first, Vanguard Global Equity, is a low-cost active fund that we have in the U-K. Being global equity means looking at companies all around the world, whether established companies in developed markets or up and coming companies in emerging economies. We've chosen two managers for this fund: the first, Baillie Gifford, is a growth-orientated firm. They're looking for companies that can grow their earnings faster than the market. The second, Wellington, take a very different approach to investing. Wellington are looking for companies that are undervalued by the market. The combination of these two results in a core global equity exposure.

Vanguard Global Equity Income is an equity-income-orientated low-cost active fund offered by Vanguard in the U-K. Being income orientated, it does offer you a higher than market yield. This is delivered by owning companies that have got really good earnings and the potential to grow those earnings in the future. We've chosen two managers for this product: one external, Wellington, and the other internal, Vanguard Quantitative Equity. The combination of these two gives you a well-diversified, broadly exposed exposure to the equity income space.

Vanguard Global Emerging Markets is a low-cost active fund offered by Vanguard in the U-K. We access this through three external managers: the first of these, Baillie Gifford, is growth focused. They're looking for companies that are going to grow their earnings faster than the market. The second is Oaktree; Oaktree take a core, if you like, eclectic approach to investing and aren't particularly leaning towards either value or growth. The third one, Pzena, is a New York based boutique. They look for value companies, companies that have been undervalued by the market that have got potential for significant upside. The combination of these three distinct yet complementary managers gives you a broadly diverse core holding to active emerging markets equity.

Vanguard Global Balanced is a low-cost active multi-asset fund offered by Vanguard in the U-K. It's a blend of 65% high quality equities and 35% high quality fixed income. The equity side are some of the market leading companies in the world. The fixed income side are high quality investment-grade debt. The combination of these two work well together to give you a low-cost active exposure to the markets.

It’s important to remember that the value of investments can go down as well as up, and you might not get your original investment back. Also, past performance is not a reliable indicator of future performance.

Investment Risk Information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate.

Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.

Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.

The funds may invest in financial derivative instruments that could increase or reduce exposure to underlying assets and result in greater fluctuations of the fund's Net Asset Value. Some derivatives give rise to increased potential for loss where the fund's counterparty defaults in meeting its payment obligations.

Important Information

This video is directed at professional investors in the UK and should not be distributed to, or relied upon by retail investors.

The material contained in this video is not to be regarded as an offer or solicitation to buy or sell securities not does it constitute legal, tax, or investment advice.

The Authorised Corporate Director for Vanguard Investment Funds ICVC is Vanguard Investments UK, Limited.  Vanguard Asset Management, Limited is a distributor of Vanguard Investment Funds ICVC.

For further information on the fund’s investment policy, please refer to the Key Investor Information Document (“KIID”). The KIID and the Prospectus for this fund is available from Vanguard via our website https://global.vanguard.com/.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2018 Vanguard Asset Management, Limited. All rights reserved.

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